5 charts show that Americans are deciding it’s a raw deal to buy a house

A for sale sign stands in front of a house in Westwood, Mass.
Buyer sentiments sit at record lows, spending is down, and builders are bracing for a pullback in demand.

  • After months of record price growth, Americans are growing sick of the housing market.
  • Buyer sentiments sit at record lows, spending is down, and builders are bracing for a pullback in demand.
  • Here are 5 charts from UBS economists showing Americans stepping away from the housing market.
  • See more stories on Insider’s business page.

Months of record-breaking prices. A historic imbalance between buyers and sellers. Most homes selling in less than one month.

To say homebuying in 2021 has been difficult is a gross understatement. And it seems that, finally, buyers have had enough.

Two significant developments stand to cool the housing market from its current fervor, economists at UBS said in a Monday note. The mass exodus from cities to rural and exurban neighborhoods is starting to reverse as companies call employees back to their offices. The switch-up should ease demand for houses in the non-urban areas that surged in popularity throughout the pandemic, the UBS team led by Ajit Agrawal said.

And although prices continue to shoot higher, demand is wavering. Total spending has fallen from its recent highs, and the number of houses available has rebounded slightly. Sentiments toward homebuying have also soured, signaling demand will wane further.

Here are 5 charts detailing the pullback in Americans’ homebuying appetites.

1. The number of total sales is falling


To start, total spending on new homes plummeted in recent months and now sits at the same levels seen just before the COVID crisis. While buyers are spending more on homes, the decline in spending implies fewer sales are taking place.

Spending on, and sales of, existing homes “has not yet been as great” as that for new homes, UBS said. But existing-home data lags that of new homes since it tracks contract closings instead of initial signings, the bank added.

2. Sales-in-progress are weakening, too


Pending home sales tumbled in June and now sit near their historical average. Pending sales are among the most reliable forward indicators of housing activity, meaning the latest decline will likely translate to weaker sales later in the summer.

Experts aren’t expecting a bounceback in July, UBS said. Consensus estimates call for another decline, and real estate marketplace Redfin holds a similar outlook.

“Home sellers are increasingly having to lower their expectations,” Daryl Fairweather, chief economist at Redfin, said in a July report on pending sales. “Many homebuyers have turned to the rental market amid such high home prices, but now with rental prices growing, I expect many will return to the housing market by spring of next year.”

3. Buyers are growing more pessimistic


Perhaps the clearest sign of buyers’ frustration comes from Fannie Mae’s sentiment data. The share of surveyed Americans saying it was a good time to buy slid to another record low in June, while the share of those believing it’s a good time to sell reached an all-time high.

High home prices were the predominant reason for the massive gap, Doug Duncan, Fannie Mae’s chief economist, said in the July report. Renters looking to buy homes in the next few years saw an even larger decline in homebuying sentiment, reflecting the higher barrier-to-entry faced by first-time buyers.

“It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments who have already established homeownership,” Duncan said.

4. Builders are stepping back


It’s not just buyers taking a breather. Builders have also retraced some of their recent jump in construction, most likely due to early indicators of weakening demand. Single-family housing starts, while choppy, fell through the end of last year and 2021.

Permits — a more forward-looking indicator of homebuilding activity — staged a steeper decline this year. Taken together, it seems builders are hoping to prop up demand and avoid flooding the market with fresh supply.

5. Building costs are reversing


Even the marketplaces that fuel homebuilding are reverting to more normal levels. Lumber costs, which skyrocketed in the spring alongside home prices, have quickly reversed their gains and now sit at their lowest level since late last year.

Demand, then, is weakening throughout the market. From homebuyers to builders to suppliers, everybody is growing tired of the housing sector’s melt-up.

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Lumber prices look cheap after 65% plunge given Americans still want new houses, says Aberdeen Standard strategist

Housing market
US house prices have soared in 2021, increasing demand for lumber.

  • Lumber prices currently look cheap, following a 65% plunge, Aberdeen Standard’s Robert Minter said.
  • The investment strategist said prices should be supported, given that Americans still want to move home.
  • However, there are some signs that the US housing market is cooling, with family home sales falling in June.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Lumber prices currently look cheap following their 65% drop from May’s all-time high, given that Americans still want to buy new houses, according to Aberdeen Standard Investments strategist Robert Minter.

Prices for lumber futures soared in the early part of the year to a record high of above $1,700 per thousand board feet amid strong demand for new houses and a home-improvement craze. But they have since tumbled round 65%, as suppliers have ramped up output and demand has cooled.

However, Minter, who is a director of investment strategy at Aberdeen, told Insider earlier this week that lumber currently “looks a little cheap.” He said the COVID-19 story is far from over, and many Americans are still keen to move houses if their companies allow them to keep working from home.

“People are moving from where they had to live to work to where they want to live,” he said. “All the people that want to move out of the city center and the near suburbs to someplace cheaper, those people have not all moved.”

Read more: Hakan Kaya’s fund is one of the top performers in the world in the last year. He told us 4 commodities he’s still betting on for the best long-term returns, and why he doesn’t bother investing in stocks.

Minter pointed to the fact that some housing companies have simply stopped taking orders as construction costs climb and labor shortages hit. He said this means that there is “demand yet to show up in the market.”

The US housing market remains red-hot. The closely watched S&P Case-Shiller house price index rose a record 16.6% year-on-year in May, up from 14.8% in April. New housing starts rose 6.3% month-on-month in June to an annualized rate of 1.64 million, according to the US Census Bureau.

Lumber prices have picked up slightly over the last two weeks, with the futures contract rising from below $540 per thousand board feet in the middle of July to above $600 in August.

However, there are signs that the housing boom is slowing, with sales of new single family homes falling 6.6% month-on-month in June, according to the Census Bureau. Applications to build also fell in June, hinting at a slower pace of construction in the coming months.

Some analysts expect lumber to keep falling until it gets back to pre-pandemic levels, as supply and demand balance out. “If it is mean reversion, you can’t stop at these levels,” fund manager Michael Gayed of Toroso Investments told Insider in July.

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Wait until 2022 to buy a house, economists say

Home for sale
People wait to visit a house for sale in Floral Park, Nassau County, New York, the United States, on Sept. 6, 2020.

  • Prospective homebuyers will face low supply and high prices for at least another year.
  • The US doesn’t have enough homes to meet demand, and builders are struggling to keep up.
  • Economists see price growth cooling in 2022, but only if construction picks up and demand holds steady.
  • See more stories on Insider’s business page.

America is still in a seller’s market when it comes to housing, and could stay there until next year.

Prices are climbing at the fastest pace in more than three decades, and homes are frequently selling above their list price, according to the National Association of Realtors. In May, the average listing was only on the market for 17 days, said Logan Mohtashami, lead analyst at Housing Wire. For it to become a buyer’s market, “For Sale” signs need to stay up for at least 30 days, Mohtashami said.

Unless construction picks up, the near-term outlook for prices isn’t promising.

Economists interviewed by Insider said price growth will remain elevated through the rest of the year and into 2022 because millennials will keep demand high – and they see the construction industry having a hard time keeping up.

Millennials are hitting peak homebuying age

In his best-case scenario, Mohtashami sees price growth cooling and supply bouncing back in 2022. But demographics complicate the outlook and could keep demand high. The surge of first-time buyers is going to be “historic,” Mohtashami said.

However, if millennial demand falls short, it could be a sign of an even larger issue. The generation’s homebuying prospects were already hammered by the Great Recession, Insider’s Hillary Hoffower reported. With the pandemic sending prices through the roof, the generation could become trapped in a vicious cycle of only renting and never having a home of their own.

“A lot of those buyers are among those for whom cost is prohibitive,” Nancy Vanden Houten, lead economist at Oxford Economics, said. “They haven’t bought a first home, or they’re paying a high rent so it’s hard to accumulate a down payment. They may also have other debts, including student debt.”

Fallout from the late-2000s housing bubble looms large

Ali Wolf, chief economist at Zonda, said more new homes should become available over the next two years, but for now, contractors are lagging.

“Builders didn’t know 2020 and 2021 were going to be some of the best years in the housing market ever,” she told Insider. “They would have needed to plan for this kind of growth in 2019. They didn’t.”

The shortage isn’t a completely new phenomenon. Home construction fell short for two decades, leaving the market with a deficit of up to 6.8 million units, according to NAR research.

Contractors “got burned” after the late-2000s bubble burst as homes away from city centers hurt their books, Zonda’s Wolf said. That damage is still top of mind and will probably hold supply back for years to come, Wolf said.

“I suspect we will continue to underbuild for years, because that deep demand pool further away from central business districts will start to shrink back to what the norm was,” she added.

Others are more optimistic. The severity of the nationwide housing shortage has captured the government’s attention. Federal and state policymakers are “more aware” of the years-long problem and its effect on inequality, Gay Cororaton, director of housing and commercial research at NAR, told Insider. That awareness could lead to zoning laws, apprenticeship programs, and funding to aid builders and boost supply, she added.

“The lack of housing is a crisis. It’s something that needs to be addressed, it just can’t go on,” Cororaton said. “It’s causing that divide between those who have and those who have not.”

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The Fed knows skyrocketing home prices are a problem, but doesn’t know what to do about it

Condo for sale sign
  • Federal Reserve policymakers have an eye on surging US home prices, meeting minutes showed.
  • Some officials “saw benefits” to tapering mortgage-loan purchases to cool the red-hot market.
  • While members chose to hold policy steady, the minutes signal the Fed may want to curb home-price inflation.
  • See more stories on Insider’s business page.

Of the various items surging in price through 2021, homes are possibly the most extraordinary.

Price growth is the strongest it’s been in more than 30 years. While demand remains elevated, builders have struggled to bring more supply to market. America’s central bank played at least some role in this incredible price inflation.

The Fed’s emergency policies dragged mortgage rates to record lows and helped spark the sharp increase in homebuying. But as prices climb to dizzying heights, some experts have called on the Fed to rein in its support. Officials at the Fed are tuned in to the problem, minutes from the Federal Open Market Committee’s June meeting showed.

Several of the meeting’s participants “saw benefits to reducing the pace” of the central bank’s purchases of mortgage-backed securities, citing “valuation pressures in housing markets.” They also suggested tapering MBS purchases earlier than Treasury purchases, a move that would counter the Fed’s past signals.

The FOMC meeting ended with policymakers electing to hold rates near zero and keep buying at least $80 billion in Treasurys and $40 billion in MBS each month.

The outlook echoes comments made in recent months by a handful of Fed officials. Dallas Fed President Robert Kaplan said in May that MBS purchases could be having “some unintended consequences” that should be weighed against their benefits.

“We don’t want to get back to the housing bubble game that cost us a lot of distress in the 2000s,” St. Louis Fed President James Bullard said on CNBC in mid-June.

Other FOMC members, however, saw reason to stay the course. Several said synchronized tapering of Treasurys and MBS purchases would be preferable, since that “would be well aligned with the Committee’s previous communications,” the minutes showed. They also noted purchases of both Treasurys and MBS helped the Fed achieve its goal of easing financial conditions.

For the moment, any policy shifts are likely months away. FOMC participants agreed to continue assessing the housing market and discussing plans for eventual tapering. Fed Chair Jerome Powell has repeatedly said that “substantial further progress” toward the Fed’s goals of maximum employment and inflation averaging 2% was required for policy adjustments.

Officials generally agreed in June the threshold hasn’t yet been met, according to the minutes. For now, then, the Fed is set to keep house prices booming. But there’s a crack in their thinking.

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Your rents are going to keep going up

Apartments for rent california
Pedestrians walk past advertising for new apartments in Los Angeles, California on October 12, 2017

  • Rent prices soared 9.2% in the first half of 2021, tripling the average pace and exceeding the pre-crisis trend.
  • Shelter inflation is set to keep climbing as millennial demand booms, analyst Logan Mohtashami said.
  • That upswing risks turning higher inflation permanent, as rent prices are tougher to rein in.
  • See more stories on Insider’s business page.

Pandemic-era rental deals are gone. Prices are shooting up, and new data suggests they’ll keep climbing at a breakneck pace.

The rally began in the housing market, where a buying frenzy dragged national inventory to historic lows and led prices to surge at their fastest rate in over 30 years. Now it’s spilling over into the rental market.

The median apartment rent in the US rose 9.2% through the first six months of 2021, rental website Apartment List said in a June 29 report. That compares to the typical first-half growth of 2% to 3%. June alone saw the website’s national rental index leap 2.3%.

The typical price nationwide now stands 2% higher than had the pandemic not taken place, according to Apartment List. That overshoot is concentrated in growing markets like Austin and San Diego, as rents in the largest metropolitan areas remain below trend.

“Whereas last year’s peak moving season was halted by the pandemic, this year’s seasonal spike appears to be making up for lost time,” Apartment List economists Chris Salviati, Igor Popov, and Rob Warnock said in a blog post.

Apartment List
Source: Apartment List

The elevated price growth isn’t likely to cool off anytime soon, Logan Mohtashami, lead analyst at Housing Wire, said. Millennials are set to power unprecedented demand over the next three years throughout the housing market. That shift will drive an even bigger gap between supply and demand, the analyst said.

“We never built enough apartments anyway. And now we have the biggest household-formation demographic group in history,” he told Insider. “Whether they’re not buying homes, they still have to live somewhere. So yeah, rent inflation should pick up.”

Rising rents pose a larger-than-usual risk to broad price growth. Shelter inflation is stickier than inflation in other categories, meaning it’s less likely to immediately cool after leaping higher.

The Federal Reserve, the White House, and most economists expect decade-high inflation to cool off as bottlenecks are addressed. Inflation for used cars, food, and utilities is expected to weaken as supply rebounds. Rent prices, however, complicate the consensus outlook. If shelter inflation continues to boom, forecasts for temporarily faster price growth could fall flat.

To be sure, rent prices are highly seasonal, and prices tend to be highest in the summer, according to Apartment List. If prices follow trends seen in 2018 and 2019, prices would fall modestly through the fall and winter. Such declines could line up with a slowing of broader inflation.

But with rents in major cities expected to keep climbing, shelter inflation is a top gauge to watch for hints at whether price growth fades as expected or stays past its welcome.

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3 signs that American homebuyers are solving the housing crisis by refusing to pay crazy prices

Millennial homebuyers attend open house
Prospective buyers visit an open house in West Hempstead, New York.

  • After months of surging prices, Americans seem to have had enough with the housing boom.
  • With inventory near record lows and prices climbing at the fastest rate ever, buyers aren’t biting.
  • There are many signals that buyers are cooling the market on their own, by saying no.
  • See more stories on Insider’s business page.

One question is plaguing prospective homebuyers in this red-hot housing market: when will prices start coming down? But the cure for high prices is high prices, to paraphrase a famous saying from the commodities world.

There’s evidence that buyers are providing the cure, staying away from the high prices and cooling the market by collective action – or inaction.

Here are the three signs that American buyers are slowing the housing market’s roll on their own.

(1) Sales down from their peak

The start of the pandemic – and unprecedented easing from the Federal Reserve – sparked the housing boom. Sales of new and previously owned homes still sit well above pre-pandemic levels, but both have slowed from their fall peaks.

The decline is powered, in part, by the massive shortage of homes across the US. With fewer homes to sell, the sales rate can’t remain at elevated levels.

Still, the steady decline suggests the market boom could be normalizing. It also comes as median selling prices for new and existing homes sit at record highs, presenting an affordability problem for buyers just entering the market.

(2) Buyer optimism waning

The wave of demand that powered the housing boom seems to be crashing.

More than half of surveyed Americans referenced high home prices when evaluating the market, according to the University of Michigan’s survey of consumer sentiment. The reading marks the biggest share ever recorded by the survey.

More broadly, 54% of respondents said it was a bad time to buy homes in May. That’s the most pessimistic outlook since 1982.

Anecdotal evidence supports the data. Eighty-two percent of millennials said in May they’re more likely to buy a fixer-upper due to affordability issues, according to a Bank of America survey. The generation is particularly vulnerable to the price melt-up. Millennials are nearing their peak homebuying age and already had their finances dented by the Great Recession. Unless price growth cools, the generation could be forced to cheaper alternatives to homeownership.

(3) Mortgage interest sinks

It’s not all bad for prospective homebuyers, however. Mortgage rates have only just risen from the record lows seen earlier in the year, offsetting some pressures from soaring prices.

Home loan data suggest the trade-off just isn’t appealing enough for buyers. The Mortgage Bankers Association’s Purchase Index – a gauge of mortgage applications for single-family homes – has tumbled nearly 27% from its January peak.

Forecasts suggest the downtrend is part of a larger correction. Mortgage applications surged through the second half of 2020, possibly reflecting a pulling-forward of demand as borrowing costs tumbled. But loan purchases have fallen below their projected trend through much of 2021, Len Kiefer, deputy chief economist at Freddie Mac, said in a Wednesday tweet.

To be sure, housing data is volatile, and recent readings suggest the buying surge will continue. Pending home sales soared 8% in May, according to a Wednesday report, trouncing the estimate for a 1% decline.

The long-term expectation, however, is for a widespread slowdown, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said.

“The surge in pending home sales is a huge outlier,” he said. “We still think sales will fall a bit further over the next few months, pushing up the months’ supply numbers and taking some of the heat from surge in prices.”

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House prices rose in April at the fastest rate on record

Home construction Delaney Park
Homes under construction in the Delaney Park housing development are seen from this drone view in Oakley, Calif., on Thursday, June 24, 2021.

  • Home prices soared 14.6% year-over-year in April as the nationwide supply shortage intensified.
  • The jump is the largest since the S&P CoreLogic Case-Shiller index began tracking data in 1987.
  • Home prices have surged through 2021 as builders struggle to catch up with unprecedented demand.
  • See more stories on Insider’s business page.

Another month, another acceleration in US home inflation.

Home prices throughout the US surged 14.6% from year-ago levels, according to the S&P CoreLogic Case-Shiller home price index. The reading marks a pick-up from the 13.3% rate seen in March and the fastest pace of price growth since data collection began in 1987. Economists surveyed by Bloomberg held a median estimate for a year-over-year jump of 14.7%.

Phoenix posted the largest one-year jump of 22.3%, according to a Tuesday press release. San Diego and Seattle followed close behind, with respective gains of 21.6% and 20.2%. Chicago registered the smallest gain, with home prices climbing 9.9% from April 2020.

Price growth accelerated broadly through April. All 20 cities included in the national index saw price growth land in the top quartile of historical performance. Charlotte, Cleveland, Dallas, Denver, and Seattle all notched their highest 12-month gains in history.

The US housing market has been on an absolute tear through 2021. Record-low mortgage rates and outsize demand drove sales sharply higher early in the pandemic. The buying spree quickly morphed into a price surge as Americans snapped up what little inventory existed before the health crisis. With buyers still clamoring for homes and supply only just rebounding, home inflation has spiked to highs not seen in modern history.

“This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years,” Craig Lazzara, global head of index investment strategy at S&P Dow Jones Indices, said in a statement. “Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing.”

Other indicators signal contractors aren’t likely to balance the market anytime soon. Housing starts rose just 3.6% in May, missing the economist forecast and offsetting just some of the prior month’s 12.1% slide. Building permits – which act as a more forward-looking indicator for residential construction – tumbled 3% to the lowest level since October.

The construction shortfall is likely to keep price growth elevated in the near term. Decades of inadequate homebuilding have left the country with a shortfall of up to 6.8 million units, according to a June report from the National Association of Homebuilders. Contractors would need to reach an annual construction pace of 2 million units to fill the gap in 10 years. But with starts sitting at just an annualized rate of just 1.57 million as of May, price pressures are set to linger well into the economic recovery.

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3 fundamental changes from the pandemic economy that could become permanent

Coronavirus restaurant
A customer pays for his purchase in the doorway of Dave’s New York, a retail store, as phase one of reopening after lockdown begins, during the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., June 8, 2020.

  • Some elements of the pandemic-era economy are likely to stick around well after the recovery.
  • Experts warned the post-crisis economy would be different, and now it’s becoming clear how.
  • From remote work to a red-hot housing market, 4 fundamental shifts could be permanent.
  • See more stories on Insider’s business page.

The post-pandemic economy is taking shape.

Fifteen months after the US first plunged into lockdown, the economy is well on its way to a complete reopening. Spending is up, businesses are rehiring, and Americans are – slowly – returning to work. Economists largely agree that economic output will grow at the fastest rate since the 1980s this year.

Yet experts have warned the recovery will occur in a country that is permanently changed. Americans should brace for “a different economy,” Federal Reserve Chair Jerome Powell said in an April conference hosted by the International Monetary Fund.

Kristalina Georgieva, managing director of the IMF, said the post-pandemic economy could yield improvements if policymakers are prepared for substantial change.

“It doesn’t mean a worse economy if we think well in advance, if we think about educational attainment, if we think about flexibility for people entering the labor market, and if we think about where growth is going to come from,” she added during the conference.

And while the US is far from completing its recovery, some fundamental shifts are increasingly clear. Here are three pandemic-era changes that could turn permanent as the country enters a new normal.

1. Remote work becomes the norm

Remote work coronavirus
A video producer works from his at-home studio to conduct remote interviews with talent on April 19, 2020 in Franklin Square, New York.

Most of the US has reversed restrictions that kept employees from the office, but not all companies are mandating in-person work like they did in February 2020.

As much as 71% of the US workforce telecommuted some or all of the time during the coronavirus crisis, according to an October survey from Pew Research. Of the 5,858 American adults surveyed, 54% said they want to work from home after the pandemic ends. 

Business leaders themselves are embracing remote or hybrid work. The switch to flexible work structures is “a permanent civilizational shift,” venture capitalist and tech entrepreneur Marc Andreessen wrote in a recent blog post, while Facebook CEO Mark Zuckerberg has said he’ll work remotely for at least half of 2022, saying it made him “happier and more productive at work.” Facebook told its 60,000 workers in June they only need to work from offices 50% of the time. It was one of many giant firms to give its workers that kind of permission.

2. A persistently hot housing market


The shift to remote work made housing hot, as Americans drove outsize demand for new and existing homes. The rally intensified further as mortgage rates hit multiple record lows through the end of 2020.

That boom has since run out of steam, but not for insufficient demand; decades of chronic underbuilding left the market with insufficient supply. After months of surging sales, nationwide inventory sank to record lows and prices leaped at their fastest pace since the housing bubble of the mid-2000s.

The market needs as many as 6.8 million new homes to balance out supply over the next decade, the National Association of Realtors said in June. That would require a 27% jump in homebuilding activity, and economists aren’t optimistic builders will rise to the occasion. The lingering gap between home supply and buyer demand will likely keep home prices climbing at an elevated rate for years, the Urban Land Institute said in May. 

3. Service jobs are out of fashion

NYC coronavirus tables restaurant
Empty tables stand at a restaurant in Manhattan on March 01, 2021 in New York City.

Jobless are largely avoiding the service industry amid reopening.

The pandemic exposed a handful of weaknesses throughout the sector. Employees risked exposure to COVID-19 just by showing up to work; wage growth remained stagnant; and conditions in retail and food service jobs worsened as businesses pushed to do more with fewer workers.

Surveys show people are looking for better pay, conditions, or both. Separately, quits soared to a record-high 4 million in April, with most occuring in the retail, food services, and accommodation industries.

Service businesses are catching on. Large-scale employers including Chipotle, McDonald’s, Amazon, and Under Armour all raised their starting wages in recent months as they rush to attract workers. Others are offering perks ranging from signing bonuses to fitness machines. To be sure, this could be a temporary hiccup during a reallocation of the workforce.

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The US housing boom helped wealthy homeowners the most

House for sale US
A house’s real estate for sale sign shows the home as being “Under Contract” in Washington, DC, November 19, 2020.

  • The housing market rally has largely benefitted wealthy homeowners as prices soar at record pace.
  • Sales of homes priced over $1 million are up 245% year-over-year. Homes worth under $100,000 are down 11%.
  • The gap is just one of several K-shaped trends in the uneven economic recovery.
  • See more stories on Insider’s business page.

Like many other aspects of the US recovery, the housing market’s boom has been anything but even.

The market rally started as a broad upswing. After home sales tumbled at the start of the pandemic, surging demand and low mortgage rates spurred a nationwide buying spree. But as the boom charged forward, a K-shaped split emerged in which type of homes were rapidly gaining value and which were being left by the wayside.

The term “K-shaped recovery” has come to exemplify uneven elements of the US’s economic rebound. Wealthier Americans generally fared better through lockdowns as they switched to remote work and leaned on savings. Low-income Americans and minorities, however, have longer recoveries ahead of them after being disproportionately hit by the COVID-19 recession.

Existing home sales data published Tuesday reveals just how wide that gap has become in housing. Sales of homes worth at least $1 million have surged 245% year-over-year, according to the National Association of Realtors. That’s a larger jump than any other price category.

Conversely, sales of homes worth less than $100,000 have plummeted 11% from May 2020 and sales of homes worth between $100,000 and $250,000 dipped 1.7% through the year.

The disparities point to growing inequity in the US housing market. Homes worth up to $250,000 accounted for about 30% of sales in May, while those worth more than $1 million only represented 6.3% of sales.

The sales gap widened even further in the spring. As dire inventory shortage drove home-price inflation to its fastest rate since the mid-2000s market bubble with demand handily outstripping supply, sales for the most expensive homes soared even higher, and sales of homes costing less than $100,000 dropped lower.

Taken together, the country’s wealthiest homeowners benefitted most from the price rally, and those living in the country’s least-expensive homes have largely missed the market upswing.

Other data suggest the trend will continue through the summer. Housing starts have wavered in recent months as expensive lumber costs and lot shortages cut into homebuilding. And sales of new homes slid again in May, suggesting contractors are far from meeting massive demand with new supply.

New homes that have gone to market are also more skewed to wealthier buyers than a year ago. Where the majority of new homes in May 2020 were priced between $200,000 and $299,000, the majority now cost between $300,000 and $399,000, according to the Census Bureau.

The shift has little to do with more expensive units hitting the market, Ali Wolf, chief economist at housing platform Zonda, wrote in a Wednesday tweet. Instead, the change reflects price growth over the last year. Roughly 95% of contractors raised prices from April to May, and most of the increases averaged $10,000 or more, Wolf said.

Addressing the shortage will take a massive effort, according to NAR’s estimates. Decades of underbuilding and losses of existing homes left the US with a supply shortage of about 6.8 million houses, according to a report published earlier this month.

Builders will need to accelerate construction to 2 million units per year should they aim to fill the hole over the next decade, NAR added. That would be a sizeable jump from the May pace of 1.57 million homes per year.

“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” Lawrence Yun, chief economist at NAR, said in the report.

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US housing starts grew less than expected in May as construction bottlenecks stifled raging demand

home construction
  • US housing starts grew 3.6% in May to an annualized rate of 1.57 million, the Census Bureau said.
  • Economists expected a 3.9% jump. The April reading was also revised lower to indicate starts dropped 12.1% that month.
  • Builders are struggling to shore up home supply as demand remains elevated and construction costs soar.
  • See more stories on Insider’s business page.

New home construction bounced back in May, but still missed economist forecasts as supply-chain issues kept contractors from servicing unprecedented demand.

Housing starts rose 3.6% to an annualized rate of 1.57 million in May, the Census Bureau said Wednesday. Economists surveyed by Bloomberg held a median estimate for a 3.9% jump.

April’s rate was revised lower to 1.52 million, implying a 12.1% slide through the month.

Building permits – which serve as a more forward-looking indicator of residential construction – fell 3% to an annualized rate of 1.68 million. That’s the lowest level since October.

Separately, the number of one-family homes authorized but not yet started climbed to 142,000 last month, the highest since 2006. The gauge is often used as a measure of backlogs in the nation’s housing market.

The May report signals that, while home construction is picking up, the rebound is far from alleviating pressure in the red-hot housing market. Massive demand throughout the pandemic saw sales rates skyrocket and drag inventories to record lows. The imbalance between supply and demand has since led prices to surge and exacerbate affordability risks already lingering throughout the market.

Starts will fail to break out and instead waver near current levels for the rest of 2021, Nancy Vanden Houten, lead economist at Oxford Economics, said.

“Strong demand, a need for inventory, and homebuilder optimism will keep a floor under activity, but builders continue to face supply constraints that may hamper or at least postpone construction,” she added.

Builders have tried to shore up home supply, but their efforts have recently run up against severe bottlenecks. Lumber prices exploded higher in April and crept higher still in May before retracing only some of the rally. The surge helped boost the producer price index for construction materials another 4.6% higher last month after climbing 5.2% in April.

Even the lots where homes are built are in short supply. The New Home Lot Supply Index slid 10% to a record low in the first quarter of the year, housing analytics firm Zonda said in May.

For now, contractors are shifting the higher costs to buyers. Home prices in the US spiked 13.2% year-over-year in March, according to the S&P CoreLogic Case-Shiller Home Price Index. The May reading exceeded the 12.5% estimate and marked the largest one-year jump since December 2005.

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